A powerful post-pandemic recovery led to equitable wealth gains
The Federal Reserve recently released latest ones Household data In two related dates Sources that tell an encouraging story about household wealth and its distribution. Household wealth increased significantly throughout the pandemic – from December 2019 to December 2023. All income groups experienced similar rates of change of their wealth. These increases reflect broad improvements in housing and financial assets. This is a far cry from the Great Recession of 2007 to 2009, when the wealth of the underside 60% of households was still below pre-recession levels 4 years after the recession began.
Assets – the difference between what an individual owns and what they owe – provide a financial cushion in an emergency, allowing families to speculate of their future or stay up for a safer retirement. Lower-income households are highly vulnerable to declines during a recession because these households typically experience higher unemployment and wage declines and subsequently rely more heavily on their savings.
This was not the case throughout the pandemic-induced recession. Household wealth has exceeded after-tax income within the 4 years because the pandemic began. By December 2023, average household wealth was 7.6 times after-tax income, down from 7.1 times in December 2019. In contrast, the after-tax wealth-to-income ratio fell from 6.6 in December 2007, briefly before the beginning of the Great Recession, to five.6 in December 2011. Overall, the changes in wealth are very different this time.
These wealth gains are also far more evenly distributed than throughout the Great Recession. For example, the common household wealth of individuals within the second and third quintiles increased by about 20% from December 2019 to December 2023 (see figure below). The average wealth of households in the underside quintile grew by 12.3%, just like the 11.5% increase for households in the highest quintile. Average household wealth grew by double digits in most income groups and faster for the underside 60% of households than for those with higher incomes.
Wealth gains were far more equitable after the pandemic than after the Great Recession
This is in stark contrast to the experience of the last recession. At that point, household wealth fell for the underside 60% of households while it rose for the highest 40%. In fact, the lower the income, the greater the wealth losses (see figure above). The high fiscal investments throughout the pandemic have paid off and led to greater financial security across the board.
These increases in wealth were also widely spread across various kinds of savings. All household groups experienced significant increases in home equity and financial investments basically, resembling: B. Stocks and bonds in retirement savings specifically (see figure below). Households at the underside experienced a 19.3% increase in home equity from December 2019 to December 2023. The value of their pension savings increased by 40.3% on the lower end of the income scale, much faster than every other income group (see figure below). . All households benefited from the rise in property and stock prices throughout the pandemic.
Wealth growth results from broad-based asset growth and slow debt growth
Importantly, the common increase in home equity for households on the lower end of the income scale coincided with the rise in homeownership. This was not the case for higher income households. Census data shows that the homeownership rate for households with incomes below the median — the income that splits the income distribution exactly in half — increased by 1.6 percentage points. In comparison, the house ownership rate for households with incomes above the median fell by 0.4 percentage points. The rise in low-end household wealth reflects real gains in long-term financial security.
It is theoretically possible that increases in home equity amongst lower-income households are attributable to wealth transfers from higher-income households. This could occur if parents help their children pay for a brand new house. If this were the case, the info should show larger home gains for white households than for black or Latino households. Finally, white households have significantly greater assets for intergenerational wealth transfer. For the identical reason, increases in home equity ought to be greater for college-educated households than for non-college-educated households. However, the identical data shows that homeownership gains were greater for Black (12.9%) and Latino (8.4%) households than for white households (7.1%). And the common increase in home equity was similar or higher for those with out a college degree — 16.7% for those with out a college degree, 20.2% for those with a university degree, and 15.5% for households with a university degree — than for those with a university degree (16.2%). It is difficult to reconcile these changes with the argument of intergenerational wealth transfers. Rather, low- and middle-income households experienced significant wage growth, often outpacing that of upper earners, which contributed to the acquisition of a brand new home, particularly within the early years before rates of interest increased.
Debt is the opposite side of the ledger. Apparently, as home ownership increased amongst low-income households, mortgages also increased. The average size of mortgages across all households in the underside fifth of the income distribution increased by 16.7%. At the identical time, consumer credit – to call just a very powerful ones: bank cards, automotive loans and student loans – fell particularly sharply amongst lower-income households. The average consumer debt of households in the underside fifth of the income distribution fell by 10.4%. In comparison, households within the second quintile fell by 10.0%, in the center fifth by 11.6% and within the fourth quintile by 3.9%. It elevated for households in the highest fifth of the income distribution by 20.4%. Because more households on the lower end of the income scale owe consumer credit than mortgages, the decline in consumer credit largely offset the rise in mortgages. The total of mortgages and consumer loans increased by only 2.6% for low-income households. In the second quintile, total mortgage and consumer debt fell 4.6% over the 4 years from December 2019 to December 2023. Households on the lower end of the income scale exchanged costly and dangerous debt for safer debt that helps construct wealth through home ownership.
The recovery from the pandemic-induced recession was quick and equitable. That does not imply many households do not have problems. They are. However, many households experienced significant improvements of their short-term financial security and longer-term economic mobility. Unlike the experience of the last recession, when economic security and opportunity were more concentrated at the highest, these improvements were distributed by income. These equitable gains wouldn’t have been possible without large and ongoing investments by the federal government within the economy.
